Shock mortgage changes out of Royal Commission

By Sarah Megginson
5 Feb 2019

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The final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was released last night, after which federal Treasurer Josh Frydenberg announced the government’s intention to proceed with 76 recommendations made by Commissioner Kenneth Hayne.

One of the key recommendations to impact the finance and property industry was around mortgage broker commissions. Effective July 1st 2020, trail commissions will be banned on all new loans. Over a period of 2 to 3 years, then all other commissions will be phased out, with mortgage brokers shifting to a consumer-pays model whereby borrowers foot the bill.

Brendan Dixon, founder and managing director of Pure Finance said this was “exactly what [the banks] wanted”.

“Once implemented, the banning of mortgage broker commissions will inevitably strengthen the profits and position of the major banks and reduce lender competition substantially – exactly what they wanted,” he said.

“On top of this, how will low income earning Aussies afford a fee for a mortgage broker to get a cheaper deal? They won’t, but the rich will – if there’s any brokers left.”

Michael Yardney, founder of Metropole Property Strategists, said the big change for property investors “will be how the mortgage broker industry copes with the Haynes Commission recommendations”.

“The good news was that there was no recommendation for further tightening of the Bank’s lending criteria, which could have worsened the current property downturn,” he said.

“But currently, just under 60 per cent of all mortgages are organised through around 20,000 mortgage brokers, who settle around 30,000 mortgages every month. At the moment broker fees are paid by the lender, the banks, as an upfront commission payment plus a smaller trailing commission for the life of the loan.”

With Haynes’ Royal Commission recommending that the borrower, not the lender, pay the mortgage broker an upfront fee, there are concerns about the sustainability of the mortgage industry going forward.

“In my mind, mortgage brokers provide an important service to borrowers, both home owners and property investors, helping them choose the most appropriate loan in the midst of a maze of options,” Yardney said.

Currently the government has not adopted the report's proposal to ban commissions for upfront commissions for brokers, however, Labor has indicated it supports the Hayne reforms.

“It will be interesting to see how all this plays out, but it may mean mortgage brokers will have to start charging clients an upfront fee,” Yardney added.